Hu Corporation Has Two Operating Divisions,A and B $\begin{array}{lrr} \text { Unit selling price } &\$200\\ \text { Unit variable costs} &\$120\\ \text { Unit fixed costs } &\$40\\\end{array}$

question 14

Multiple Choice

Hu Corporation has two operating divisions,A and B.The following information is provided for Division A: $\begin{array}{lrr} \text { Unit selling price } &\$200\\ \text { Unit variable costs} &\$120\\ \text { Unit fixed costs } &\$40\\\end{array}$
Division B uses the type of product produced by Division A and has approached Division A about buying the product internally.Division B is currently paying $180 to purchase the product from an outside source.If Division A sells internally,it can save $5 per unit in variable costs.Assuming Division A is operating at capacity,what price should it charge Division B if the transfer is to be made?

• A) $115
• B) $195
• C) $125
• D) $200

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Definitions:

Market Value

The current market rate for buying or selling an asset or service.

Cash Acquisition

A purchase of one company by another using cash as the form of payment rather than shares of stock or other considerations.